Morning Wrap: Wall St futures fall after Walmart issues profit warning, ASX set to rise

ASX Futures (SPI 200) imply the ASX 200 will open 24 points higher, up 0.35%.

Investors are nervous as four “trillion-dollar club” companies will report over the next two days, Walmart cut its earnings outlook as inflation takes a toll on customer spending and China plans to set up a US$44bn real estate fund, sending iron ore prices higher.  

Let’s dive in.

MARKETS

US stocks are choppy ahead of Microsoft, Apple, Amazon and Alphabet earnings over the next two days. Walmart released an earnings downgrade after market close, sending retail stocks and US futures lower.

The Fed is in position to deliver another 75 bps rate hike on Thursday as inflation remains at 40-year highs.

• 8 out of 11 US sectors advanced

• Energy rallied an outsized 3.7% on the back of higher oil prices

• Defensives were again relative outperformers

• Discretionary, Tech and Communication Services were the only red sectors

• 53% of US stocks advanced 

• 68% of US stocks trade below their 200-day moving average (69% on Monday, 74% a week ago)

STOCKS

• Walmart (-0.2%, after hours: -9.4%) cut its quarterly and full-year profit guidance, saying inflation is affecting customers’ ability to spend on general merchandise categories and requiring more markdowns to move through inventory 

  • This has impacted several retailers in extended trading including Amazon (-3.8%) and Target (-5.3%)

• Whirlpool (-1.8%, after hours: +1.7%) reported an -8.2% decline in quarterly sales. The KitchenAid owner downgraded its full-year revenue growth outlook to -6% from 2-3%

  • “Shortages will be around this industry probably for the entire '22. However, they start easing. We start seeing them easing so it's getting better, but it's been a painful two years, to be honest,” CEO Marc Bitzer told CNBC

• Philips (-7.2%) shares hit a 9-year low after posting a wider-than-expected decline in second quarter earnings due to supply shortages and lockdowns in China. The Dutch medical equipment maker cut its full-year sales outlook to 1-3% from 3-5%

• Newmont (-13.2%) shares tumbled after the second quarter profits came in well-below expectations. The gold miner reported a 33% jump in costs while sales were flat

EARNINGS

US corporate earnings we’re watching next week:

• Tuesday: Ups, Coca-Cola, GE, McDonalds, Visa, Alphabet, Microsoft

• Wednesday: Shopify, Spotify, Meta Platforms, Ford, Qualcomm, Etsy

• Thursday: Pfizer, Mastercard, Amazon, Intel, Apple

• Friday: Exxon Mobil, Chevron, Procter & Gamble, AstraZeneca  

ECONOMY

• US Dallas Fed Manufacturing Index was -22.6 in June, from -17.7 in May

  • Texas manufacturing activity has contracted for a third straight month

  • Economists polled by The Wall Street Journal expected a reading of -10

COMMODITIES

• Iron ore futures rose 1.2% to US$105.8 a tonne after the Chinese government announced plans to establish a real estate fund worth up to US$44bn to support property developers

  • Chinese iron ore futures on the Dalian Commodity Exchange rallied as much as 7.5% on Monday

• Oil prices remain tenacious amid another wave of poor economic data from the US and Europe. Germany’s business confidence plunged to the lowest levels since the initial pandemic and the Dallas Fed Manufacturing came in softer-than-expected 

• Gold slipped as investors brace for another supersized rate hike from the Fed

  • "Gold is still looking vulnerable here as it struggles to find buyers; ETF purchases have disappeared, China’s Covid situation should keep the precious metal purchases depressed, and the strong dollar trade does not want to go away," said Oanda senior market analyst, Ed Moya

#1 Retail

Local retail stocks including Wesfarmers (ASX: WES), Harvey Norman (ASX: HVN) and JB Hi-Fi (ASX: JBH) could see some negative flow after Walmart downgraded its earnings outlook in extended hours.

"Food inflation is double digits and higher than at the end of Q1. This is affecting customers' ability to spend on general merchandise categories and requiring more markdowns to move through inventory, particularly apparel," said the earnings update.

"During the quarter, the company made progress reducing inventory, managing prices to reflect certain supply chain costs and inflation, and reducing storage costs associated with a backlog of shipping containers."

#2 Iron Ore

The Chinese government announced plans to set up a real estate fund worth up to US$44bn to support property developers, including Evergrande.

Chinese iron ore futures rallied as much as 7.5% on Monday in anticipation of more support for delayed and halted construction projects.

The price action from local iron ore majors BHP (ASX: BHP), Rio Tinto (ASX: RIO) and Fortescue (ASX: FMG) was rather underwhelming, up between 1-2%.

Interestingly, US-listed BHP and Rio Tinto rallied 3.4% and 3.8% respectively overnight.

#3 Lithium

The Rare Earth/Strategic Metals ETF was one of the best performing ETFs among the ones we track, up 2.5%.

From a technical perspective, the ETF is beginning to close above the 20-day moving average (red) and trendline (black).

VanEck Rare Earth/Strategic Metals ETF (Source: TradingView, Annotations by Market Index)

Thinking out loud: there are a lot of tech and healthcare charts that are a few steps ahead of what we're seeing above. As in, they've experienced a deep correction, stabilise and started to push short-term moving averages and trendlines.

Names like CSL (ASX: CSL), Codan (ASX: CDA) and Altium (ASX: ALU) come to mind.

#4 Uranium

The Global X Uranium ETF +2.1%. Several uranium-related stocks including Denison Mines, UR Energy and Energy Fuels Inc all rallied more than 5% overnight.

Uranium spot prices remain unchanged around US$4.7/lb.

ASX corporate actions occurring today:

• Ex-dividend: None

• Dividends paid: BBC

• Listing: None

• Issued shares: ADN, ARN, ARU, BRK, EDC, EDU, FEX, GNG, ICI, IME

Other things of interest (AEST): 

• Korea GDP Growth Rate (Q2) at 9:00 am